Evoke (LSE:EVOK) — Acquisition of William Hill

0:01 Good afternoon, ladies and gentlemen, and welcome to the eight eighty eight Holdings PLC Acquisition of William Hill Investor Presentation. Throughout this presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time using the Q and A tab

0:19 mode. The company may not be in a position to answer every question it receives during the meeting itself. However, the company review all questions submitted today and publish responses where it is appropriate to do so. These will be available via your Investor Meet company dashboard, and we'll notify you by email when they are ready for your review. I'd also like to remind you that this presentation is being recorded. Before we begin, we would like to submit the following poll. And if you'd be so kind as to give that to your attention, we'd be most grateful. And I'd now like to hand over to Ittai Pazna, CEO and Jarev Dafna, CFO from eight eighty eight. Good afternoon. Good afternoon, everyone, and thanks for joining us today to discuss the transformational deal for eighty eight. I'm joined today by Yarib Dafna, our CFO and Vaughn Lewis, our CSO.

1:05 I'll just quickly touch on the key highlights on Slide three, then I'll hand over to Vam to explain why this strategically is such a positive deal for us, and then I'll expand on how this combination positions The Us as an enlarged business for future growth. And then Yoref will explain why this is so compelling from a financial perspective. We will then open up for some questions. So firstly, a bit about the business we are acquiring. William Hill International is all of the original William Hill p l PLC except for The US business. It includes all of the technology and the brands and, critically, all of the talented people with over 10,000 of new colleagues.

1:52 As a result, this transaction significantly enhances the scale and diversification of the business, particularly embedding. We create a regulated market leader with really strong positions across some of the most attractive global markets. We will massively enhance our management capabilities, bringing in some talent from across William Hill businesses. We will also see a step change in scale. All of the benefits have come from that, including enhanced margins. With leading products and brands across betting and gaming, we will really enhance our player propositions, and adding retail gives us a great new channel to engage with customers while building our brands, which is we are really, really excited about.

2:39 Yauriel will cover the financial details later, but I would just like to say that we have reviewed many opportunities in the recent past, and I really believe that this transaction propels eight eighty eight into a very strong position strategically and the financial returns will be attractive. Now I'll hand over to Vaughn to run through some of the strategic attractions of this deal. Thanks, Itay, and good afternoon, everyone. Thanks for joining on us on this call. So this is a combination that's been discussed many times in the past, and it's great to be part of it happening now. And the reason why the combination has been discussed so many times is that the strategic logic is just so powerful for this combination,

3:26 and that's what we've outlined on Slide five here. So we'll have a more diversified revenue mix, in particular, increasing our exposure to betting, which is the largest and fastest growing online vertical. Our revenues here will grow by about 5x as a result of the combination. The combination also strongly enhances our positions in key regulated markets, and these are the most attractive markets with the biggest growth potential. The step change in scale will boost our margins, will bring in loads of outstanding talent to support our combined growth plans, and we'll continue to create best in class products, combining the best of both eight eighty eight and William Hill. So strategically, there's huge attractions here. It's a combination that creates a business that is bigger, better and stronger.

4:15 And on the financial side, Yarif will cover the details shortly. But alongside propelling eight eighty eight into a very strong position strategically, the financial returns here are really attractive. So turning to Slide six. And primarily, this deal is about delivering growth and positioning the enlarged business for superior growth. Digital betting and gaming is an immature industry still, with only under 20% of all gambling taking place online and years of strong structural growth still to come. The enlarged scale of the combined business will put us in an even stronger position to benefit from these growth trends as well as giving us more capabilities to prosper through changing regulations, technologies and customer preferences. This is a really strong virtuous circle for this combination, which we show on the right.

5:04 So the step change in scale gives us more capacity to invest in future growth. The combination of the amazing eight eighty eight Gaming brand and the iconic William Hill Sports brand gives us a really powerful brand platform to deliver future growth. Combining our best in class technology and products will further improve customer experience, driving up share of wallet as we broaden our engagement with customers, including through a really strong omnichannel opportunity. And our scalable technology will enhance our operating leverage, providing more funds to invest in future growth. I'll now hand back to Ittai to expand on the opportunity. Thank you, Von. Over to Slide eight. I'll start with a bit of an overview of the combination and why we're so excited about this transaction.

5:51 Eight eight eight is a technolog technology and gaming DNA business by DNA with a scalable global platform and huge digital capabilities. Our brand is recognized by customers as a world class gaming brand. William Hill is a bookmaker by DNA with an iconic betting brand that is instantly recognized across The UK. We are both digitally led, consumer focused, and committed to player protection and raising industry standards around safer gaming. Alongside these solid foundations to both businesses, we have both made great operational progress in the last year or two. And as you can see, the strong momentum is in both businesses is here and happening right now. We are we reported our our results last week, but you can see on the slide how impressive the last five quarters have been. William Hill is also flying with around 40%

6:54 total online growth in the first half of the year and over 50% growth of in its UK online division, taking significant market share. The combination of aided age technology and gaming led business with William Hill's sports led business will create really powerful and large business Underpinned by scale, technology, talent and brands, the enlarged business will be really well placed to drive continued growth. Moving on to Slide nine. We show the new makeup of the enlarged online business by geography and by products. As you can see, the combined business will be diversified with about half of online revenue coming from The UK and over 80% of online revenue from regulated and tax markets.

7:47 The gaming and betting split would be seventy thirty, significantly increasing our betting exposure as, Juan mentioned before. Slide 10. The slide the the the combination will put us in a really strong position in some of the largest and most attractive online betting and gaming markets in the world. On this slide, our top 10 regulated online betting and gaming markets, you can see the combined share will we will we already have about 5% to 10% in most of of these with the top three position in UK and Spain.

8:26 As you can see in the charts, the combined market share will be over 12% in The UK, over 10% in Spain and nearly 7% in Italy, as well as around 5% to 10% across a number of other exciting growth markets. This gives us top three positions in The UK and Spain with a combination of our brands, products and operating skills. We are really placed to build a top three position across these markets. As well as materially enhancing our market share positions, large business will be more evenly split between betting and gaming in these markets. Turning to Slide 11. The combination of William Hill and eighty eight doesn't change our existing plans in The U. S, which are based on the newly established SI Sports Illustrated sports book brand.

9:25 SI is a really strong American brand with a large and growing customer base in The US. Partnering with this brand allows us to invest much more selectively in The US with a clear focus on using SI SI's brand footprint and positioning to acquire customers more effectively

9:44 and to to build a profitable business over time. I'm pleased to say that we successfully launched SI Sportsbook in Colorado last week, And we're really excited about the opportunity to enhance our US growth plans with our significant additional sportsbook expertise that William Hill brings to the table, from prior operations that they already had in The US. Moving to Slide 12. One of the things that excites me most about this combination is the ability to support and enhance our product leadership strategy by leveraging a range of top quality products and features to really enhance our customer experience. William Hill has totally repositioned its product set in the last twelve months and has loads of brand new features and products.

10:36 The further we went through this process, the more impressed I was with what William Hill has been doing. We share really clear product principles built around engaging products that are quick and usable and content rich. These products always have safer gaming in their core, and we will ensure scalability by combining the best of breed products, building them once and deploying them globally. This opportunity to drive revenue synergies from areas such as product enhancement enhancement and sharing of content is one of the really exciting aspects of this deal. Slide 13.

11:16 I'd like to expand now a bit more on the retail business of William Hill. We're really excited about the retail business and see a a real brand benefit here, having an estate of 1,400 shops across The UK, helping to build the brand awareness and trust around William Hill. The management team have gone have done great a great job with the retail business. The estate has been right sized reflecting, first, the changes in regulations for gaming machines and then the impact of COVID nineteen. While there were undoubtedly some difficult decisions for the team and a very difficult period for some of the colleagues, our due diligence work suggests it has put the business in a really strong and sustainable position with a high quality estate run by thousands of friendly and knowledgeable shop floor staff.

12:12 William Hill is the highest rated retail brand for convenient location, which is one of the most important drivers for customers traffic in The UK. It is a really strong brand with a loyal customer base and is the most recommended brand as a result of that. The management team have loads of exciting plans, bringing in new technology to both betting and gaming. As part of this, we see a really big opportunity in omnichannel, enhancing the customer experience for people who bet

12:43 across both retail and online. I'll now hand over to Yarif to outline how compelling this transaction is from a financial perspective. Thanks, Itay. Good afternoon, everyone. On slide 15, we can see some of the key financial. I hope you have all had the chance to read our RNS with some of the key financial highlights. But just to quickly touch on the price, it is 2,200,000,000, which represent a 2.9 x multiple based on normalized 2020 EBITDA.

13:15 Given the strong current trading, if we use the last twelve months to May, the price represent approximately an 8 times multiple or six times post synergies. Based on comparable multiple in the market for similar transaction, this represent a compelling price for a top quality asset. In terms of numbers, the enlarged business would have generated just over 2,500,000,000 in revenue on a normalized basis in 2020. The waterfall chart here breaks out the key component of this, and and it is important to note that this is an adjusted figure reflecting estimates of the full year trading in retails.

13:54 The deal will trigger our revenue and EBITDA. In terms of EBITDA, the enlarged business would have generated $464,000,000 in 2020. As you can see in the waterfall chart, this reflect the $156,000,000 from 88,000,000 together with the contribution from the three key business segment of William Hill less its corporate cost. We expect significant enhancement of our adjusted EPS in the first year of probably over 50%. From a financing perspective, we have committed funds to complete the transaction. However, in order to provide a more favorable midterm capital structure, we plan to raise approximately 500,000,000 in new equity at the appropriate time, which would give us pro form a leverage under four x or around three x on a fully synergized basis.

14:48 Given the strong cash, generation profile and our expectation to reduce leverage to below three x in the medium term, we currently have no plan to change our dividend policy, which to remind you is distributing 50% of our net profit. Moving to Slide 16. The combination significantly enhance our scale, and this step change will enable us to generate significant synergies. We expect cash synergies of $100,000,000 per year by 2025 with a gradual phasing of these synergies. We expect a little over half of this in year two, reflecting our plan to focus on business momentum and take time and consideration to ensure we capture the best product and technology from each of the the businesses.

15:38 We expect the cost to achieve these synergies to be around one x the annual run rate, which means about a 100,000,000. It is important to note that staff cost synergies are not material part of the plan. Most of the saving are enhanced scale driven and coming from cost of sale, marketing, and technology.

15:58 One of the most important attraction of the William Hill business is the strength and depth of the management team and the employees. We are really looking forward to working with them to position their large business for growth. With that, I will hand back to Itay to for some concluding remarks. Thanks, Arif, and thanks, Yvonne. Just to conclude, this is a really attractive transaction for eight eighty eight and William Hill International, and we will drive shareholder value as well as positioning the large business for future growth. It creates a more diversified business that is a leader in regulated markets with increased scale, huge product and technology capability, and a financially highly highly attractive combination.

16:49 With that, I'll be very happy to take some of your questions. Thank you very much indeed for updating investors this afternoon. Ladies and gentlemen, please do continue to submit your questions using the Q and A tab that's situated on the right hand corner of your screen. I'd like to remind you that a recording of this presentation, along with a copy of the slides and the published Q and A, can be accessed via your Investor Meet company dashboard. I'd also like to remind you that your feedback is important to the company. And immediately after the presentation has ended, you'll be redirected for the opportunity to provide feedback in order that the company can better understand your views and expectations. Vaughan, perhaps I could if I could hand Q and A session back to yourself. If I could ask you where appropriate to read out the questions and, of course, give a response, that would be fantastic.

17:36 Great. Thanks, Mark. So we had a couple of presubmitted ones. So the first one for Yuriy, would you reduce or increase the amount of equity to issue if the share price moves ahead of the deal closing? So it's very important to clarify that. We have a complete package for finance this deal even without the equity. So we are not depends on the equity in order to close the deal. The equity that we plan to do is in order to have a better capital structure, And we this is our own plan, and we will do that at the appropriate time. Depends on, of course, market condition. Right. Another presubmitted one. With the outcome of The UK regulatory review on online gambling, if that's substantially worse than you expected, could you renegotiate the terms of the acquisition?

18:32 The answer is no. But we as part of the due diligence, so we share very similar view about the regulation in The UK with the with the seller and with the William Hill team, and this was all factored into the transaction. And so this is this is not open for renegotiation. There is no condition like that in the agreement. Got a few questions from Andy. Thanks. He said great acquisition. What do you see as the greatest challenge in integrating William Hill into your existing business? Yeah. So so I'll answer that one. So it is indeed a great acquisition, and, you know, it will require integration in the future.

19:23 I think the key challenge in this case is to make sure that we keep all the key all the talent across both sides of of the deal. So eighty eight and William Hill. We believe we have a great teams, people that are very good in execution. And we have to go through a planning phase now. So the deal was signed but hasn't been completed yet. So we have a lot of planning ahead of us. We're not planning to create a huge amount of disruption in the first, let's say, twelve to eighteen months. We will plan between the teams together. Like we said in in the presentation, we're going to find the best pieces of technology on both sides, combine them in order to offer our customers the best experience that they can get, which will be better than the experience that each company could do individually because we will have more resources, we'll have the best teams in place, and we'll have the best parts of the product from both sides.

20:28 The next one's from Andrew. Will will retail investors be included in the share offer? So the the equity raise plan is not yet fully defined, but it's it's likely to be a a broad issue. So, of course, you know, all the shareholder will have the right to participate. One from Simon Sea. Do do you think the combined entity will enable you to expand globally quicker? So, yes, we do think that the combined entity will be able not only to expand quicker, but also to gain more share. So, essentially, both companies if you look at it in in the plans in the expansion plans, both companies are going after the exact same markets aside from The US, which is obviously split out of William Hill, which was one of William Hill's ambitions in the past, and that's one of the reasons that Caesars acquired them. But if you look at the European and global landscape outside of The US, we both have very similar ambitions and targets Approaching them again in a unified manner, with the unified marketing budgets, unified products means that we will be able to concentrate more efforts into those territories and gain larger shares. As the industry consolidates more, as there are more regulatory

21:58 adaptations and changes in the markets, we feel that this combination can create a much better position from from a market growth and market share perspective for the combined entity. So a couple of similar ones from Karen H and Andrew are asking about the property portfolio at William Hill. I'll take that and just say, look, there's a relatively small number of freehold properties within the 1,400 shops, but it's not material. And the majority of those are leased on short term leases. Another one from Andrew R. Do you think it's just disappeared, but do you think there's a strong future for the retail estate, or is all the growth going to come online?

22:46 I think retail is a is a stable business that's that's delivering a stable cash flow and profitability to the business, which is really important, specifically in this period, but in the future as well. We do not plan to do any kind of significant changes in the in the retail estates. And the team at William Hill have been very busy in the last eighteen months working on technology in different parts of the business. One of their biggest projects is actually a retail project and technology, which they're starting to roll out now. I think that that could come with additional benefits and upside once they manage to to operate the retail with the modern technology stack, which will enable the teams there to do better omnichannel activities. So, basically, to offer customers who we know are going into their shops and also bid online to do that across William Hill brands both online and in the retail outlets.

23:54 Great. Couple of similar ones on on debt for Yareef. So from Brett L and Karen H. So the cost of borrowing of £2,000,000,000 doesn't seem to be in the figures. What should we think about for that? And how comfortable should investors be? Sorry, for Mick B, we'll come to Brett's question. And then what is the number of years definition for medium term to reduce leverage to three times? So I will start maybe from the end. So we are expecting not more than two years that it will take us to go below the three x leverage level. In terms of the cost of the borrowing, so, of course, you know, this is not yet in the public domain and when the time will come, so we will provide all the details. But I can say that we managed to secure good terms for their financing package.

24:46 And one from Ralph. It's I do do you plan to invest substantially more in The US now? Yeah. So we have, you know, we have solid plans to roll out in The US. We just rolled out we we just launched the first Sports Illustrated market in Colorado a few days ago. We're looking forward to see how that launches and to get feedback from customers. We're really excited about that launch. We have a plan to roll out four additional states in the in the next twelve months, and we are working on additional licenses. And the plan for us in the next three years is to launch about three to four states per year in The US market. We think this deal, which is actually significantly increasing our free cash flow, will actually support and help us invest further in The US.

25:37 And another l very important element, there is staff in William Hill that operated in in in and helped in building The US platform of of William Hill, and they're very familiar and knowledgeable about The US market. So I think that will only enhance our abilities there. So in general, the answer is is yes. I do think this is actually a positive move that will help US expansion move faster and further. And while while we're on The US one from Graham H follow-up, are Caesars going to use the brand name in The US, and why don't this get confusing? Will are Caesars going to use the the brand in The US? Well, they are using it now.

26:25 Their future plans, I think it's better probably to ask them. They have the right to to use it in The US. I'm not sure, what exactly their plans are. I don't think it's it's really confusing across, both sides of, of the ocean. They can use, William Hill in The US in retail as they as they did up till now. And from our perspective, William Hill you know, the main assets of William Hill as a brand are specifically in The UK and some of the other countries in Europe, which got exposure to to to William Hill, like Spain, like Italy, and that's where we have the, obviously, full ownership of the brand. So from Karen H1 on synergies, does the 100,000,000 of synergies include the expected impact from UK regulatory changes on a net basis?

27:16 Yeah. So I I wouldn't mix the two the two issue. We do have a plan that suggests impact coming from the regulatory change in The UK. And and regardless this, we have an estimation of a 100,000,000 that synergies that we can generate from the current business businesses as they trade today. And then what looks like the final one from Carty, how do you see the dividend progressing? So as I mentioned earlier, didn't change our policy, and we do plan to continue to pay our policy according pay dividend according to the policy, which suggests distribution of 50% of our net profit. It looks like there are no more questions to answer. Perfect. Vaughn, thank you very much for hosting a great job and to Itay and Yaref for your responses.

28:12 Again, thank you to investors who have taken the time to submit those questions. I know investor feedback is important to the company, and I'll shortly redirect investors to provide you with their thoughts and expectations. But before doing so, Yara, Ittai, perhaps I could just hand back to you just for a few closing comments. Yes. Thank you. Yeah. So we're we're very excited about this transaction. It sets us exactly in the place that we wanted to be, which is one of the top European operators immediately and very well positioned to take a leading position in the global gaming space. So I wanted to thank everyone for joining us this afternoon, and have a great evening today. Thank you. Ittai, Yaref, Vaughan, thank you very much indeed for updating investors today, and congratulations on your transaction.

29:00 Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order that the management team can better understand your views and expectations. It's only take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of the management team of eight eighty eight Holdings PLC, we'd like to thank you for attending today's presentation. That now concludes today's session, and good afternoon to you all.